At the opening of the year 1862, from causes narrated in the preceding chapter, the government finances were in an embarrassed and critical situation. In Europe the general opinion—founded in many influential quarters on the wish—was that the Union would be dissolved; that with the success of the South, there would be still further division between the East and the West; and that the only compact power would be the Confederacy founded on slavery, with the world's great staples as the basis of its wealth and its assured development. We had but recently and narrowly escaped war with England on account of the Trent affair, and in the crafty and adventurous Emperor of France we had a secret enemy who saw in our downfall the possible extension of his power and the strengthening of his throne. Confederate bonds were more popular in England that the bonds of the United States. The world's treasures were closed against us. The bankers of Europe, with the Rothschilds in the lead, would not touch our securities. Their united clientage included the investors of Great Britain and the Continent, and a popular loan could not be effected without their aid and co-operation. We were engaged therefore in a threefold contest,—a military one with the Confederacy, and diplomatic and moral one with the governments of England and France, a financial one with the money power of Europe.
These causes threw us upon our own resources. The problem to be solved was the utilization of our wealth without the aid which comes from the power to borrow foreign money. Congress had obviously failed at the extra session of July to use the taxing power to the extent which financial wisdom demanded, and though it was now willing to correct the error, there was not enough time to wait the slow process of enactment, assessment, and collection. Our need was instant and pressing. The banks of the country, many of them in reckless, speculative hands, were freed by the suspension of specie payment from their just responsibility, and might flood the country with worthless paper which would entail great distress upon the people. The Treasury notes not being paid in coin on demand, as promised on their face, became discredited to such a degree that the banks of the leading commercial cities would receive them only as a special deposit, and not as money of account. So entirely were these notes distrusted in the opening month of 1862 that in more than one instance State banks exchanged their own bills for them as an act of patriotism, in order that the bounty due to soldiers just recruited might be paid before they left their State rendezvous to join the armies in the field. Troops already in the service had seen more than one pay-day go by without sight of the paymaster, and tens of millions were overdue to them. Discontent in all the camps was the natural result.
With no power to exchange our bonds for coin except at such rates as would destroy national credit, with only a hundred millions of coin in all our banks when the war began, and a hundred and fifty millions hoarded among the people, with the lavish products of our mines transferred to Europe to pay for articles which it would have been wiser to manufacture at home, our situation was not merely one of anxiety but of peril. Never in the history of national progress through trials and crises, were wise statesmanship and financial sagacity more imperatively demanded. The Rebels might fight without money, for they had no national credit to protect; but to the Union, bankruptcy meant final and hopeless ruin.
LEGAL-TENDER CURRENCY PROPOSED.
The first thing to be secured was a currency. That was demanded to pay the debt of honor due to the soldiers; to remove stagnation in business; to put the people in heart and hope. It had been demonstrated that Treasury notes, without punctual and regular redemption, would not circulate. When A paid them to B in satisfaction of a debt, B had no assurance that he might in turn cancel an obligation by paying them to C. It would perhaps occur to C, that for a lawful debt he had the right to demand gold or silver; for the law told him in explicit terms that nothing else constituted a legal-tender. It was obviously impossible to conduct the business of the country and to carry on the war, in coin payments, with the small amount of coin at command. Few would insist upon coin, but as the power to insist upon it was a legal right, it was a continuing menace to the confidence of trade.
In the opinion of the majority, the one imperative duty was that the government should take control of the currency, issue its own paper as a circulating medium, and make it equal and alike to all, by declaring it to be a legal-tender in the payment of debts. It was the most momentous financial step ever taken by Congress,—as it is the one concerning which the most pronounced and even exasperating difference of opinion was manifested at the time, has since continued, and will probably never entirely subside so long as the government keeps one legal-tender note in circulation. It was admitted to be a doubtful if not dangerous exercise of power; but the law of necessity overrides all other laws, and asserts its right to govern. All doubts were decided in favor of the nation, in the belief that dangers which were remote and contingent could be more easily dealt with than those which were certain and imminent.
Relief came promptly. On the 22d of January, 1862, Mr. E. G. Spaulding of New York reported the legal-tender bill to the House. It had been maturely considered by the Committee of Ways and Means, —a committee made up of very able men. Mr. Spaulding is entitled to rank as the author of the measure. It is difficult to assign absolute originality in any case where so many minds are at work in the same field of investigation, and where, with an approximate identity of date, there is a general similarity of conclusion. But the formal proposition and the public advocacy belong to Mr. Spaulding. He had been all his life engaged in financial affairs, was a banker of recognized ability in the city of Buffalo, and enjoyed a high reputation throughout the State of New York for intelligence and probity. He had not waited for advice or even for consultation, but on the thirtieth day of December, 1861,—the day on which the banks of New York suspended specie payment,—he introduced the original legal-tender bill in the House of Representatives.
The first provision of the bill now reported, was for the issue of $150,000,000 of Treasury notes, differing from those previously authorized by being declared a legal-tender for all obligations, public and private, except duties on imports and interest on the public debt. The notes were also to be exchangeable into six per cent. bonds, redeemable at the pleasure of the United States after five years. In reporting the bill, Mr. Spaulding called it "a war measure, a measure of necessity not of choice, to meet the most pressing demands upon the Treasury, to sustain the army and navy until they can make a vigorous advance upon the traitors and crush out the Rebellion." He argued, "These notes will find their way into all the channels of trade among the people; and as they accumulate in the hands of capitalists, they will exchange them for the six per cent. twenty years' bonds:" the notes will "be equally as good, and in many cases better, than the present irredeemable circulation issued by the banks." Mr. Spaulding argued that the Constitution justified such legislation in the emergency, and he declared that by this plan "the government will be able to get along with its immediate and pressing necessities without being obliged to force its bonds on the market at ruinous rates of discount: the people under heavy taxation will be shielded against high rates of interest, and capitalists will be afforded fair compensation for the use of their money during the pending struggle for national existence."
Mr. Spaulding admitted that "a suspension of specie payment is greatly to be deplored," but he contended that "it is not a fatal step in an exigency like the present. The British Government and the Bank of England remained under suspension from 1797 to 1821- 22, a period of twenty-five years. During this time England successfully resisted the power of the Emperor Napoleon, and preserved her own imperiled existence. As a measure of necessity, she made the Bank of England notes virtually a legal-tender by suspending the specie restriction. Throughout this period the people of Great Britain advanced in wealth, population, and resources." Mr. Spaulding maintained that "gold is not as valuable as the production of the farmer and the mechanic, for it is not as indispensable as are food and raiment. Our army and navy must have what is far more valuable to them than gold or silver. They must have food, clothing, and the material of war. Treasury notes, issued by the government on the faith of the whole people, will purchase these indispensable articles."